Parthasarathy Shome panel's recommendations on GAAR make sense, on the whole

This newspaper argued, on July 18, that it makes sense to implement the proposal to bring in general anti-avoidance rules (GAAR), popularly condensed into an acronym that evokes a picture of the tax department as a truculent dog straining at the leash, as part of a larger overhaul of taxes that brings down tax rates to levels that make compliance tolerable. The Parthasarathy Shome panel's recommendation to postpone GAAR to 2016-17, rather than make them kick in next year, would create space for such holistic reform of taxation.

The recommendation to stop taxing gains from sale of listed securities, whether shown as capital gains or business income, for all investors makes it all the more imperative that GAAR be brought in as part of overall rationalisation of taxes. The panel's recommendations for a threshold income for application of GAAR, for a negative list of things that are off-limits for invoking GAAR, for a five-member panel to approve, by majority, invocation of GAAR in any case and for three of those five members to be from outside the tax department, all make eminent sense. Complete clarity that GAAR is to be applied only in cases of "abusive, contrived and artificial arrangements" should permeate the rules that are framed to implement GAAR and the conduct of officers who administer GAAR.

It makes sense to give sufficient time to frame rules and train tax personnel properly. It is easy to conclude that the panel is recommending putting GAAR to deep sleep, as a pragmatic response to investor qualms about how a GAAR-empowered tax department would bite. While pragmatic considerations might not be entirely absent, it is also possible to see the panel's stance as active implementation of GAAR over a three-year period in terms of framing proper rules and training personnel.

An aspect of the panel's recommendation that merits attention is planning tax proposals over multiple years, instead of terminating visibility on tax reform at the end of the fiscal year. Such planning would help India collaborate better with tax authorities around the world, to better capture the value that globalised business increasingly occludes from national tax jurisdictions.